The nature of money is rapidly changing as a result of digital and cryptocurrencies. When most people think of cryptocurrency and traditional banks, they often consider the two financial systems to be mutually exclusive, but today, the worlds of crypto and traditional banking are merging.
Digital currencies must be distinguished from the distributed ledger technologies that underpin them. To protect investors, Bitcoin and other cryptocurrencies must be subjected to strong financial regulation and oversight. The value chain of banks, insurance companies, and other financial services providers is being transformed by the digitalisation of the financial services industry. Having virtual accounts for crypto businesses can help make transactions while you continue to grow your business and transfer to the new trend of crypto.
Bitcoin, Blockchain And Distributed Ledgers
Originally, blockchain technology was created as a platform for digital currencies. In the traditional sense, Bitcoin and other cryptocurrencies such as Ethereum aren’t actually money. Rather, they are units of account that are used as a medium of exchange on multilateral private networks where users agree to accept virtual currencies as a medium of exchange.
Cryptocurrencies enable senders and receivers of digital currency units to send and receive payments in real-time, without the need for financial intermediation. These web-based payment systems use cryptographic methods to make payments through a peer-to-peer computer network in a secure, rapid and cost-effective manner.
Mining is the process of validating new transactions, merging them into new blocks and rewarding the winning node of the network in the form of new bitcoins. As a result, bitcoins and other virtual currencies are dependent on participants’ trust in the security and integrity of a decentralised computer network, rather than on a central bank’s credibility. To gain access to the bitcoin reference software, each participant in the bitcoin network must use a suitable software program such as a wallet. This software allows users to manage their own bitcoins and execute bitcoin transactions.
Will Digital Currencies Be An Existential Risk To The Banking Sector?
Fintech platforms are increasingly acting as a direct link between investors and borrowers. So it’s not just cryptocurrencies or digital currencies that are posing a severe threat to banks’ underlying business model, but a variety of other financial technologies as well.
Therefore, banks will have to compete harder to maintain their competitive advantage. Some banks have already begun to adopt new technologies, but we may be on our way to a world where banks’ traditional businesses that are intermediating between investors and borrowers in terms of maturity transformation and payment facilitation would all see significant margin reductions.
Cryptocurrency and other digital currencies are characterised by a lack of transparency, significant price volatility and minimal entry barriers. A solid regulatory framework and market monitoring are required to provide integrity, transparency, and hence, investor protection. The underlying distributed ledger technologies, on the other hand, provide numerous opportunities to execute financial market transactions at lower costs while improving the reliability, integrity and speed of the settlement processes. Distributed ledgers are expected to become a critical technology for financial market infrastructures such as stock exchanges, central securities depositories and financial institution back-office functions in the future.
Today, the worlds of crypto and traditional banking are merging, as more cryptocurrency businesses seek banking licences and legacy financial institutions consider how they may utilise bitcoin to improve their current consumer services.
To Conclude
The new technology will have a huge impact on financial institution market structures and business models, but it will also have a substantial impact on supervisory and review processes. Blockchain technology will allow for new types of securities to be created and will likely lead to increased disintermediation of main capital markets. These factors will undoubtedly have a variety of effects on corporate funding, and new capital market products could expand the range of financial instruments available to businesses.